McKinsey & Co. and Bain & Co., two of the world's most elite and secretive consultancies, have signed Internet alliances that plop them squarely into competition with the Big Five professional services firms.
McKinsey will advise Accel-KKR Internet Co., the venture capital alliance of Kohlberg Kravis Roberts & Co. and Accel Partners, on the Internet strategies of the companies in which it invests. Bain & Co., meanwhile, has introduced BainNet, a consortium that pairs Bain consultants with technologists from six high-tech companies.
McKinsey and Bain consultants have advised Fortune 500 execs on their companies' strategies for decades. McKinsey in particular consults directly with CEOs and has produced more than its share of them. (McKinsey alumni include IBM Corp. CEO Louis V. Gerstner Jr., American Express Co. CEO Harvey Golub and scores of dot-com chiefs.)
Both firms' consultants typically are glib, brainy and likable, able to hold forth on most any e-business subject after a nanosecond of reflection. More important, their advice usually works. These traits, along with their absolute discretion, have long endeared "McKinseyites" and "Bainies" to old-line company chieftains.
But the Internet economy has wreaked havoc with the traditional corporate pecking order. McKinsey and Bain have participated in the Web revolution but have focused more on guarding their elitist profiles. Meanwhile, the Big Five--Andersen Consulting, Cap Gemini Ernst & Young, Deloitte Consulting, KPMG L.L.P. and PricewaterhouseCoopers L.L.P.--have transformed themselves from staid accountants to Internet giants with numerous technology company consulting pacts and multimillion-dollar ad campaigns.
The end result is that the McKinsey and Bain brand names, while still powerful, do not have the same zing with the rising dot-com leadership as with their older counterparts. "To the generations growing up today they are not known as well as the Big Five," said Dean McMann, managing partner of Houston consultancy The Ransford Group. "They have incredible brands, but they need to be out there talking about them."
Apparently, that's a message both McKinsey and Bain are getting.
While executives at both firms did not reveal any advertising plans, the firms did on the same day in mid June trumpet their new consulting pacts in widely distributed news releases.
Blitzing the wires with announcements of new strategies and alliances is an everyday tactic of the Big Five, but McKinsey and Bain take that approach about as often as the CIA does.
McKinsey meets Accel-KKR
McKinsey's 6,000 consultants will work alongside Accel-KKR execs in building the Internet units of old-line Fortune 500 companies. The McKinseyites, who can advise on any business topic, will swoop in to consult after Accel-KKR takes a stake in the units.
Accel-KKR will develop the business and recruit employees. McKinsey, meanwhile, will provide industry-by-industry brainpower, saving Accel-KKR from needing to do lots of research on its own, said Marc Lipschultz, the executive in charge of KKR's Internet activities. "We can tap their industry knowledge instead of reinventing the wheel each time we build a platform," he said.
McKinsey will make money by taking equity stakes in the Web units Accel-KKR invests in, Lipschultz said.
Dick Foster, director and senior partner of New York-based McKinsey, said the Accel-KKR deal is a natural extension of his firm's prior Internet work.
"While this is McKinsey's entry to the Accel-KKR Internet Co., it is not in any way our entry into either the Internet business or to the convergence between the needs of incumbents and the capabilities of the Internet," he said.
Ex-McKinseyites, and those who have worked with them, are typically lavish in their praise of the firm's e-consulting prowess and broad industry knowledge base.
But at least one consultant--an ex-McKinseyite now working in investment banking--said the firm has a lot of catching up to do to match the Internet savvy of some Big Five firms.
"They were always the ultimate consulting firm and everyone else was No. 2. But other firms have been faster to focus on the Internet than was McKinsey," said the consultant, who asked not to be identified. "But they still do have a great name with established companies."
And this is precisely what Accel-KKR and McKinsey are betting will keep business coming their way. Indeed, only days after the McKinsey relationship was announced, Accel-KKR detailed plans to help McDonald's Corp. build a b-to-b unit.
BainNet on tap
BainNet will target both big companies and dot-coms. It is not a unit unto itself, but rather a virtual organization of Bain consultants and technologists at six software and e-commerce companies: i2 Technologies Inc., ArsDigita Corp., Cysive Inc., NetCel360, TradeMatrix and Xuma. Employees from the various companies will work alongside each other on specific assignments and disband when finished.
The idea is that Bain's consultants will provide high-level e-business strategy and the technology companies will follow through on their recommendations by building, say, an Internet-enabled b-to-b call center. Unlike with the McKinsey/Accel-KKR relationship, fees and equity stakes will be negotiated independently.
Bain started BainNet because it found its clients were increasingly asking for not just dot-com advice but also help in building the guts of new e-commerce systems, said Steve Berez, VP of e-commerce at the Boston-based consultancy. Wide-scale implementation programs, however, were beyond the reach of Bain, which has about 2,400 consultants.
"Bain is a strategy firm. But in the last few years clients have asked us to become involved in areas we have not traditionally been involved in, such as the implementation and management of IT resources," Berez said. He said BainNet's technology partners will help it handle such projects.
BainNet faces brutal competition. A slew of big consulting firms have recently started programs that combine strategy consulting with technology company know-how. One of the biggest such deals created a new consultancy, Roundarch, that is being bankrolled by Deloitte Consulting, WPP Group plc and BroadVision Inc.
Berez said BainNet's strategy acumen and impartiality in terms of software selection will help it outflank Roundarch.
"With Round-arch, you know you're going to get a BroadVision platform," he said. BainNet, on the other hand, will pick software from its partners on a case-by-case basis or go outside when necessary, he said.
Heidi Packard Blood, a Roundarch marketing manager, confirmed that her company exclusively uses BroadVision software. The advantage in doing so is that it saves not only time, but also consulting fees, she said.
Unfazed by competition
At least one Big Five firm leader is unfazed by competition from McKinsey and Bain.
Grady E. Means, PricewaterhouseCoopers' global leader of the Strategy Consulting Group, said the combination of his firm's size--it has 35,000 consultants--and its in-house tech building abilities will continue to serve it well.
"A McKinsey or a Bain can figure out the strategy issues," Means said. "They are very smart at that. But they cannot do the implementation of technology design, through resourcing, through management. We can do that. This requires a very big scale."